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Patriotism is great when it comes to cheering for Team Canada. When it comes to your portfolio? Maybe not.

Every financial professional agrees: diversification is the simplest, easiest way to protect your portfolio. Among other things, diversification means holding not just Canadian investments, but a healthy dose of international securities.

However, a survey conducted in February by Toronto-based Environics Research demonstrates that many Canadians don't like to venture beyond this country's borders when it comes to their investments. Among 1,000 "affluent individuals" (those with more than $250,000 in investable assets), the average respondent replied that 64 per cent of their family's equity portfolio was allocated to Canada. The typical respondent planned to lower the number by a measly 2 per cent over the next year.

No only do these actions conflict with the usual advice about diversification, they also run contrary to what high-net-worth individuals (those with $1-million or more in investable assets) have been doing over the past several months.

Based on discussions with high-net-worth individuals and with adviser colleagues, I would say "home country bias" is disappearing rapidly. I estimate the portfolio of the average high-net-worth individual I know is now allocated perhaps 40 to 50 per cent to Canadian equities, with plans to bring the number even lower in the months to come.

Is there a lesson here? I believe there is. There's a big difference between "affluent" and "high-net-worth" individuals, and it has a lot more to do with attitude than net worth.

The high-net-worth crowd have already hit their financial home runs; while growth is still important to them, preservation of wealth is their primary concern. Wealthy investors seem to have a deeper understanding of the cyclical nature of business and stock markets. As a rule, they seem to know good times don't last forever; they realize there are times in the cycle to lock in profits. All this leads to a keener awareness of the importance of diversification.

Before anybody accuses me of Canada-bashing, let me say I completely understand the rationale for overweighting Canadian equities. Our stock market has had an extraordinary run over the past several years. Our economy is in better shape than that of many other countries. Our financial sector came through the recession relatively unscathed, and other sectors (energy and agriculture) have long-term tailwinds behind them.

But allocating 64 per cent of an equity portfolio to a single market is an astonishing level of concentration. This is particularly true when one considers how highly concentrated Canada's equity market already is: energy, materials, and financials make up the bulk of the market cap. These people are piling concentration upon concentration, and accepting a tremendous amount of risk. Is there more upside in Canada? Yes, absolutely. But the wealthy are learning where there are opportunities to diversify, find value and reduce risk.

If you've had 64 per cent of your portfolio in Canadian equities over the past two to three years, you've probably done very well. But it's time for an asset-allocation decision. The wealthy are beginning to take some "Canada" off the table. Perhaps it's time for you to consider doing the same.

The opinions expressed in this article are the opinions of the author and readers should not assume they reflect the opinions of Richardson GMP or its affiliates.

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